New Mexico faces $40 million shortfall as virtual programs trigger enrollment‑growth funding; lawmakers weigh ban and stricter reporting

A Senate Finance Committee hearing on virtual learning Wednesday laid out an urgent budget problem and possible fixes after officials said a reallocation of students following local contract changes triggered unexpected enrollment‑growth funding.

“That cost is costing the state about $40,000,000 in enrollment growth funding,” Sonny, a Public Education Department (PED) staffer, told the committee during a presentation on program history and fiscal impacts. He said the growth funding will persist unless the legislature appropriates money or changes the funding formula.

Madam Secretary Badia told senators that PED lacks a complete inventory of virtual programs because districts and charters are not required to report which of their enrolled students participate in virtual programs. The department sent a voluntary survey to 190 districts and charters; 99 responded. Of the respondents, officials reported 7,285 distance‑learning students, which they estimated represents about 3.2% of students in those reporting LEAs, but several student IDs reported by LEAs could not be matched with PED enrollment files.

“We identified 4 students that had addresses outside of the state,” Badia said, adding the department will investigate and that “614 of those students that have been reported to us, we cannot match with our enrollment records” (PED earlier also cited 617 as an unmatched figure in the presentation), a discrepancy PED said it will resolve as it finalizes data validation.

Lawmakers pressed for immediate action to avert the shortfall. Committee members and presenters discussed short‑term budget language already proposed by some budget analysts that would ban new online enrollment‑growth units for one fiscal year to buy time for a comprehensive solution. Sonny said that approach is already included as suggested budget language in some executive and oversight recommendations.

“Right now there are recommendations to ban online growth units in language in the budget for both the executive, LFC and LESC recommendations,” Sonny said.

Members also questioned why PED does not already have more oversight of local contracts that shift substantial sums to private vendors. Badia said local districts negotiate contracts under state procurement rules and PED does not routinely review or approve those contracts unless a district requests a reorganization (e.g., to create a distinct virtual school code), which some districts did after contracting with private providers.

Representative Herrera and others cited examples in which a limited amount—“about $1,000,000” in two contracts PED mentioned—remained with the district while the remainder flowed to the private vendor, and asked whether PED can require contract disclosures. Badia responded that the survey was voluntary and that PED can request contracts in reorganization reviews or at the legislature’s direction.

Committee members signaled willingness to act quickly. The committee chair urged staff to work with Sherry Coleman at NMSU on an in‑state online platform pilot and to develop draft legislation and budget language to give PED stronger reporting authority and to address the immediate budget gap. The panel agreed to weekly follow‑ups on the topic.

What happens next: presenters said PED will continue data validation, produce more granular reporting (including graduation‑rate comparisons once student IDs are matched), and that the legislature is likely to consider a mix of short‑term budget language (a time‑limited ban on new growth units) and longer‑term statutory changes that would require reporting, permit contract review in certain circumstances, and establish performance and approval standards for virtual programs.